# What Is DRIP? Dividend Reinvestment Explained

> A dividend reinvestment plan, or DRIP, adds dividends back into the holding. Here's a with-versus-without example, and what the projection leaves out.

Source: MarketCapLens — https://www.marketcaplens.com/learn/what-is-drip
Updated: 2026-09-21

A dividend reinvestment plan, or DRIP, uses cash dividends to buy more of the same holding instead
of paying them out. The account then earns the next dividend on a larger starting value. That is
mechanical compounding of the dividend — not a promise that the share price will rise.

**Key takeaways**

- Each year: dividend = that year’s starting value × that year’s yield.
- Reinvest by adding the dividend back; then add any contribution at year-end.
- Yield then grows by the dividend-growth rate you typed.
- This projection has **no** separate price-appreciation rate and **no** tax drag.

## How the projection works

> **Each year: dividend = starting value × that year’s yield; add it back only if you reinvest; then add the contribution.**

Yield here is the current yield on that year’s starting value, not yield on cost. A 2% yield on
$10,000 pays $200 that year, whether you bought years ago at a different price or not.

Without reinvestment, dividends leave as cash and the account grows only by contributions. With
reinvestment, those dividends stay in and earn later yields.

## A worked example

Start with **$10,000**. Yield is **2%**, dividend growth **5%**, and you add **$1,200** at each
year-end, for **5** years.

- With reinvestment the account ends at about **$17,439.53**.
- Without reinvestment the account ends at **$16,000**, and **$1,383.28** was taken as cash
  dividends.

The gap is the dividends that stayed in, plus the extra yield they earned later. Try the same inputs
in the [DRIP calculator](https://www.marketcaplens.com/tools/drip-calculator).

## What DRIP tells you

It isolates the effect of putting dividends back to work, given a starting value, a yield path, and
optional contributions. Holding periods of different lengths can be compared on that same mechanical
path.

## What DRIP leaves out

Share prices move. This model does not. It also ignores taxes, fees, and skipped dividends. A
company can cut the dividend; the typed yield path will not know. Yield on cost — what you earn on
the price you originally paid — is a different statistic, and this calculator does not compute it.

If the path is one lump sum with no extra cash and no dividends to model, [CAGR](https://www.marketcaplens.com/learn/what-is-cagr)
is the simpler annualized reading of a start and an end.

## Using it next to a live company

A company page such as [Apple](https://www.marketcaplens.com/company/AAPL) may show a dividend, with an as-of date. That snapshot
is not a 5-year yield path. Type the starting value, yield, and growth yourself. The ranking will
not invent them.

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*For general education only. Nothing here is investment advice.*

## Frequently asked questions

### What is a DRIP?

A dividend reinvestment plan uses cash dividends to buy more of the same holding instead of paying them out. The MarketCapLens DRIP calculator pays a dividend on that year’s starting value, optionally adds it back, then adds your contribution at year-end.

### Does a DRIP projection include price growth or taxes?

Not this one. The holding grows from reinvested dividends and contributions only. There is no separate price-appreciation rate and no tax drag. Yield is the current yield on that year’s starting value, not yield on cost.

### What is the worked example?

$10,000 at a 2% yield, 5% dividend growth, and $1,200 contributed each year for 5 years ends at about $17,439.53 with reinvestment and $16,000 in the account without it. Without DRIP, $1,383.28 is taken as cash dividends.